FDIC Lawsuits Against Failed Banks Surged in 2013: Report

Reporter

Director and officer litigation by the Federal Deposit Insurance Corporation against financial institutions that failed during the financial crisis spiked last year, according to a new report, due to the large number of failures in 2009 and 2010. And now, the outcome of those lawsuits could redefine the relative negotiating strength of the FDIC as well as the defendants going forward.

Of the 297 financial institutions that failed in 2009 and 2010, nearly 40% have either been the subject of an FDIC lawsuit or settled claims with the FDIC prior to the filing of a lawsuit, according to the report by Cornerstone Research, a firm that provides economic and financial analysis for commercial litigation and regulatory proceedings.

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The eighties was when the excesses of our banking system began their long journey into insolvency. A large number of Savings and Loans had to be closed down. Back then we had better supervision of the process, with the Resolution Trust Organization established to sell-off assets of failed banks. Bad banks had to be liquidated, not just merged and bailed-out. The same problems are still with us, now its just the banks. The solution in 2008-2009 was to merge weak or failing businesses like Countrywide with large holding banks like bank of America. Then, the FDIC and the FED bailed them out. So, many of the problems have unfortunately, not been resolved. Thus, our much celebrated "recovery" can not be sustained until all these bad credits and assets are flushed out.

Its worth mentioning that a lot of the Federal Government's civil lawsuits against defunct Savings and Loans, such as People's S&L in Salem, Oregon were handled under contract with local (Portland) law firms. Many lawsuits never successfully resulted in judgements and in fact, often were dismissed or discontinued (dropped). The Government's success rate in court was probably pretty low in the end. A lot of money was lost in the process. Kind of like investors and former employees arguing about the demise of Enron. If you were involved at all, you likely suffered financial losses.

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